A Guide To Student Property Investments + 44 (0) 1708 922 222 info@sterlingwoodrow.co.uk www.sterlingwoodrow.com 1
Contents 3 Introduction 4 Facts & Figures 6 The Returns 8 Locations and Properties 10 Buying and Selling Process 12 Reasons to Invest 14 Do s and Don ts 16 Sterling Woodrow s Role 17 Summary 18 Disclaimer Introduction The student property investment sector is undoubtedly one of the most popular for wealth-building property investment opportunities in the UK. Student property investments have become a fast-growing asset class in the UK and are continuing to outperform many other asset classes for a number of reasons. Rental yields for traditional buy-to-let investments in the UK have seen better days and more UK and overseas investors are moving away from them and towards fullymanaged, purpose-built student accommodation (PBSA). The attraction of PBSA investments is that they are fully-managed, meaning that investors simply write the cheque to purchase the unit and then just sit back and collect the regular rental payments. So, there are no requirements for investors to deal with any aspect of management, tenanting or administration of the building. Everything is taken care of by the management company hired by the developers to maintain and run the building. As well as being hands and hassle-free PBSA investments also deliver better yields and have assured buy-back options built into the investment. This gives investors a regular rental income plus assured capital appreciation on eventual sale. PBSA investments are perfect for first-time investors as no experience is required as everything is done-for-you. They are also perfect for experienced investors who wish to diversify their portfolios away from traditional buy-to-let investments and not have to spend their valuable time administering the investment. One of the reasons PBSA is so good for diversifying portfolios is that they are not affected by the volatile residential market. Furthermore, as a commercial property investment these properties are exempt from Stamp Duty at purchase and Capital Gains Tax on exit, so they are inexpensive compared to regular buy-to-let investments. The reason that PBSA investments are so profitable is all down to the current and future demand for student accommodation. 2 3
Facts & Figures Student Numbers Mean High Demand for Accommodation In recent years, student accommodation has been in increasing demand due to rising student numbers. More students are being accepted into higher education year-on-year, despite higher tuition fees and Brexit uncertainty, this is because the UK is regarded as one of the global leaders in higher education. The increased number of students in UK universities and educational establishments means that there is a greater demand for housing. A study by Knight Frank found that in the academic year of 2014/15 around 6% of the UK student population (72,000 students) were living in purposebuilt student accommodation, compared to 3% in 2007/08. That growth has continued and both private and institutional investors have found this investment sector to be extremely attractive. Looking at the numbers for 2017 and 2018, EU applications are in fact the second highest on record with 51,185 European students applying for UK university places in the 2017 cycle! A spokesman for UCAS said: The number of applicants from the EU in 2017 is the second highest on record. Furthermore, both universities and the government are keen to keep the number of EU students coming to the UK as high as possible. In an attempt to mitigate any Brexit concerns ministers have pledged that EU students starting courses in the 2018/19 academic year will still be eligible for government tuition fee loans, which has provided reassurance to EU students planning to study in the UK. That appears to be reflected in the numbers for the 2018 cycle, which are just as, if not more, impressive than recent years; A UCAS study showed the number of EU student applicants for the 2018 cycle was up 6% compared to 2017 applications. International students (excluding EU) rose by 12%. The total number of applicants to 15 October 2017 deadline for courses is 61,440 an increase of 7% (+ 4,250 people) on figures released at the same point 2016. Clare Marchant, Chief Executive of UCAS, said; These degree programmes and universities are always popular, and at a time of uncertainty, it s encouraging that UK higher education remains so attractive, not only to UK students but also those from EU countries, and internationally. The number of applicants from the UK at this deadline has risen by 6% (+2,530 people) to 41,970, the highest number recorded since 2010. This increase is driven by a rise in applications from 18-year olds in England (+8%), and Wales (+7%), with 2,190 more of these young people submitting applications, despite a fall in the UK 18-year old population of around 3% this year. First time applicants to this deadline are up 8% to 56,020, while the number of students reapplying from the UK has fallen by 1%, to 4,220. Applicants from the EU have risen by 6% (+370 people) to 6,610, reversing much of the 9% fall seen at this point in the 2017 cycle. Applicant numbers from outside the EU have increased by 12%, to 12,860 (+1,350 people). 1 So, it is clear that despite tuition fee rises and any Brexit concerns the numbers of students applying to UK universities from within the UK, within the EU and from outside the EU are all rising, meaning demand for student accommodation is only going to increase in the foreseeable future. Now we have established the viability of the market for PBSA investments, let s look at the returns that have made it such a popular and profitable investment. 1. https://www.ucas.com/corporate/news-and-key-documents/news/number-applicants-octoberdeadline-university-courses-reaches-highest-recorded-ucas-figures-reveal 4 5
The Returns For PBSA investments, the returns are up to 9% NET for 5 years. For example; A 60,000 investment with 9% assured yields for 5 years and a 110% buy back option at that point would give you these returns; Rental income; 9% of 60,000 = 5400 per year 5400 per year x 5 years = 27,000 Selling; The 5-year buy-back option includes an added 10% to the original purchase price. 110% of 60,000 = 66000 Total return; 27,000 (5-year rental income) + 66,000 (buy-back) = 93,000 ( 33,000 profit) That represents a 55% return on investment over 5 years. PBSA investments generally also offer a 10-year option of assured yields and a buyback at 125% of purchase price. The numbers are even more impressive when that 9% yield is calculated over 10 years with a 125% buy-back we ll leave you to do the maths on that investment. 6 7
Where to Start Choosing a Student property and location Location Choosing a location for PBSA is just as important as the appearance of the building. A good location will mean better returns for the investor. Areas in the north of England such as Sheffield, Huddersfield and Liverpool have a higher number of students than suitable accommodation and so there is little competition for PBSA investments. Furthermore, land and property are cheaper in these areas making the investment more affordable and therefore more profitable. Areas in and around London are oversaturated with various kinds of property and crucially the costs are much higher, increasing the amount required to invest and driving down profits, resulting in lower yields. Students also look for areas close to both the university and the city centre where they can enjoy shopping centres, restaurants, amenities and nightlife. Furthermore, locations with transport links are considered more attractive to student tenants. So, a good location for a PBSA investment is a city centre location, close to the university, with good transport links, in a city with a high student population. When you work with Sterling Woodrow, as a client you will be presented with fullyresearched investment opportunities, meaning you do not have to do all this research yourself. Sterling Woodrow vet all investment opportunities and only offer properties in the best locations, with the best yields and capital appreciation potential. The property PBSA units are luxury student housing, with many facilities that will be attractive to the modern student. PBSA include study rooms, entertainment rooms, gyms and common rooms as well as the individual living pods. Each unit has its own kitchen and bathroom, eliminating the need for shared kitchens. These high specification buildings are the way forward, and overseas students are more than willing to pay more rent for better quality accommodation. Financing a student property Student accommodation investments are for cash buyers only. This is due to the fact that the UK doesn t have mortgages for student property investments, since it is fairly new to the market. However, although investors cannot secure a mortgage for these properties, they can be financed through loans and other kinds of borrowing if investors have access to them. The fact that they cannot be mortgaged is offset to a large extent by the fact that PBSA is generally an off-plan investment. This is the term used in the industry for properties still under development. Many PBSA developments go on the market as early as one year before completion. This will give investors more time to raise capital for a student accommodation investment if they require it as the full payment for an offplan PBSA will also not be required until after the construction has been completed. However, the main advantage of off-plan purchases is that they are bought at price that is significantly below market value, thus giving instant capital appreciation upon completion. The entry price for PBSA investments is relatively low, and they range from under 50,000 up to 100,000. With a NET yield of 9% on a 100,000 investment, investors would receive 9,000 every year in your pocket for up to 10 years and then enjoy exit at 125% of purchase price. Those numbers stack up very well, not just against other property investments but against any other available investment! 8 9
The Buying, Renting and Selling Process Before You will need to reserve the unit(s) as soon as possible. Due to the high demand of PBSA investments and the fact that we are dealing with cash buyers, units sell out very quickly and unless a unit is reserved, it cannot be guaranteed that you will get one. The reservation fee of about 5,000 is payable at this point and this is refundable. It is also deducted from the overall cost of the unit. There is also a 1,000 admin and handling fee which is also payable at the reservation stage. During this time, you will be asked to exchange contracts within 28 days. We have recommended solicitors on hand who are very familiar with these types of developments and so have all the knowledge needed to make the process as smooth and easy as possible. During and after There are no ongoing costs when it comes to PBSA. The developer will have a management company with a great track record to run the building and ensure that you get paid on time. All your returns are NET so that is the amount you will get in your pocket there are no further fees or payments required from investors once the unit has been purchased. After the contract with the developer has ended (can be anything from 3-10 years, with a break clause), you are likely to have a buy-back option built-in. A buy-back option allows you to sell the property back to the developer at 110% - 125% of initial purchase price, giving you a nice lump sum to top up the profits already made from rental income. 10 11
10 reasons why you should invest in a student property During and after 1. High yields of up to 9% NET per annum can be achieved with a purpose-built student accommodation investment. 2. Get an assured rental income for 3 to 10 years even if there is no tenant in your unit. 3. Fully managed by a property management company no call outs, tenant sourcing, or maintenance costs. 4. As these properties are classed as commercial properties they are exempt from stamp duty. 5. Furthermore, profits from the eventual sale are also exempt from capital gains tax on exit. 6. There is a high demand for PBSA due to rising student numbers (from the UK and overseas) and university housing just doesn t have the capacity for all these students. 7. Students want specialist accommodation rather than traditional HMO s and are willing to pay higher rents for state-of-the-art accommodation. 8. There is no registration or licensing required with PBSA unlike with traditional HMOs. 9. Student accommodation investments are considered to be recession-proof as people don t stop going to University even at times of economic slowdown. 10. Investors enjoy an assured buy-back option of 10% - 25% above the purchase price, giving a lump sum profit upon exit. 12 13
Do s and Don ts for Student property investments Do s: 1. Be open to various locations. A hands-free investment means there are no restrictions when it comes to location as everything is fully-managed whether the location is on your door-step or at the other end of the country makes no difference as all you have to do is receive your regular rental income payments. This is what makes these types of investments so attractive to overseas investors. 2. Don t: 1. Don t invest for short-term profits. PBSA investments are a medium to long-term investment and although there is capital appreciation assured the majority of profits will come from rental income over 5 10 years. 2. Don t be discouraged by Brexit. Whilst there is some uncertainty around the implications of Brexit the rate of student growth in the UK shows no sign of decreasing that goes for UK, EU and non-eu overseas students! Diversify. A diverse portfolio with at least one student property means all your eggs aren t in one basket, offering some protection during uncertain times in the property market. It is important to note that PBSA is not affected by the ups and downs in the wider residential property market as they are commercial investments with their own captive market. 14 15
Sterling Woodrow s Role Summary Sterling Woodrow are a property investment company and provide clients with a number of advantages when it comes to investing in PBSA. To begin with we do all the research on behalf of our clients, selecting the best properties based on; Location Assured yields Developers Quality of building Using our years of experience in the industry we know exactly what it takes to identify a winning investment we only work with developers with a good track record of delivering for investors and are focused on offering our clients only the most profitable opportunities out there. A student accommodation investment is a highly lucrative property investment. It is suitable for first-time investors looking to get into property investing, as well as experienced property investors who want to diversify and make their portfolios more profitable. Indeed, many experienced investors are turning to student property to diversify their portfolio in order to spread their risks, as the UK residential housing market fluctuates. For a low entry price, you can get an assured NET return of up to 9% as well as a buy-back option of 10-25% above the initial purchase price, which delivers returns that you will not receive from any other investment. We help first-time investors through the process by dealing with the developers directly and taking all the stress away from you, the investor our aim is to make the process of purchasing the property as smooth and easy as possible. As well as dealing with the administrative aspect we can also offer clients preferential rates due to our bulk-buying power and the fact that we have long-term relationships with many developers, therefore bringing investment opportunities to our client base at the best possible price before they are offered to the general public. 16 17
Disclaimer Conditions Apply. Sterling Woodrow Ltd is not authorised or regulated by the Financial Conduct Authority under the Financial Services and Markets Act 2000 ( FSMA ). The information contained in this guide does not amount to a financial promotion for the purposes of section 21 FSMA. This guide is provided for general information only and nothing contained in the material constitutes a recommendation for the purchase or sale of any security. Although the statements of fact on this guide are obtained from sources that Sterling Woodrow consider reliable, we do not guarantee their accuracy and any such information may be incomplete or condensed. Also views expressed in this guide are based on research materials available from sources considered reliable. Views are subject to change on the basis of additional or new research, new facts or developments. The investment risks described herein are not purported to be exhaustive, any person considering an investment should seek independent advice on the suitability or otherwise of the particular investment. Investment products are not bank deposits or obligations or guaranteed by Sterling Woodrow Ltd or any of its affiliates or subsidiaries unless specifically stated. Investment products are not insured by government or governmental agencies. Investment products are subject to Investment risk, including possible loss of principal amount invested. Past performance is not indicative of future results: prices can go up or down. Investors investing in investments denominated in foreign (nonlocal) currency should be aware of the risk of exchange rate fluctuations that may cause loss of principal when foreign currency is converted to the investor s home currency. All applications for investments products are subject to Terms and Conditions of the individual investment products. Customer understands that it is his/her responsibility to seek legal and/or tax advice regarding the legal and tax consequences of his/her investment transactions. If customer changes residence, citizenship, nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. Customer understands that Sterling Woodrow Ltd does not provide legal and/or tax advice and are not responsible for advising him/her on the laws pertaining to his/her transaction. Sterling Woodrow Ltd has no involvement or personal interests in any of the investment opportunities offered to clients through our consultancy. This is not an offer to participate in a collective investment scheme as defined in section 235 of the Financial Services and Markets Act (2000). 18 19